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The Next Shale Bonanza

North America’s oil and gas industry has proven so effective in extracting hydrocarbons from shale rock that the US is poised to begin exporting natural gas beyond North America, and political forces are converging that could lead to oil exports.

The new American energy bonanza has prompted foreign investors to fund US and Canadian projects in exchange for the know-how — and eventually, a slice of the exported hydrocarbons.

Still while other countries have similar shale rock formations, and have acquired American technological know-how via M&A and joint ventures, no one has come close to matching the production gains seen in North America.

As the shale and unconventional discoveries in North America move from exploration into long-tail production phases, companies will look abroad to find new growth.

Shale (Photo credit: Dendroica cerulea)

Shale producer Chesapeake Energy is interested in putting its discovery skills to work internationally, once it has resolved its funding and production plan in the US, CEO Doug Lawler said at the IHS CERAWeek energy conference in early March.

But where remains a big question. China, Ukraine, Colombia, Australia and Mexico have made efforts to be the next big thing in shale, but none has emerged as a frontrunner. Ultimately, it will take more than copying the rocks and science to make the energy business grow in other parts of the globe.

First and foremost, the place that best mimics the US’s private ownership of mineral rights will see unconventional drilling and hydraulic fracturing take root and blossom, noted Rob Franklin, president of ExxonMobil Gas & Power Marketing, during a discussion on global natural gas at CERAWeek.

Landowners most affected by the down-and-dirty work of drilling have to see a direct benefit of that work, numerous American oil execs have told me.

Second, nowhere in the world has the equipment, crews and infrastructure to match what’s available in the US. In West Texas’ Permian Basin, you can make a call in the morning and have a crew and equipment on site by lunchtime, an executive noted.

Wherever shale drilling takes root next, it won’t be as easy, nor flourish as rapidly as in North America. Wildcatters and corporations were searching and scanning American lands for oil and gas for decades before the shale revolution. We’ve now got more than 100 years of seismic data on the underground of this continent, and that simply doesn’t exist elsewhere.

And then there are environmental concerns, both related to producing and consuming hydrocarbons.

Where could it happen? Australia has many good attributes for gas drilling: Wide open spaces, and the beginnings of export infrastructure. China has great demand coming down the pike, and ample land as well.

On a smaller scale, Colombia aims to tender unconventional basins next summer for exploration, and has a stable, open business structure. Turkey and Poland have also seen shale gas projects.

In the United Kingdom, British Gas is planning exploration in the Bowland Basin alongside smaller independents already working there.

Still, as British Gas CEO Chris Finalyson conceded at CERAWeek, the US has a sustainable cost advantage for producing natural gas for a long time.

Chad Watt, based in Dallas, is Mergermarket’s energy sector head. He can be reached at chad.watt@mergermarket.com

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